Banks bracing for commercial real estate defaults

Fund managers are warning banks that the $5.6 trillion U.S. commercial real estate industry could experience defaults on mortgages, especially in major cities, the Financial Times reports.

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“We’re likely going into a real estate recession, but not across the entire real estate market,” says Guggeinheim Partners Chief Investment Officer Anne Walsh. She predicts the worst pain will be concentrated in the biggest urban centers of the country, like New York and San Francisco, where many offices are still vacant.

Rising interest rates and falling prices are worsening the problem of finding tenants for office buildings still empty after the pandemic.

[They may be impacting the issue at the edges, but the real issues impacting this sector are decentralized work forces and crime in the cities. No one really wants to work in the rapidly decaying urban cores after the BLM riots and Defund the Police unleashed all sorts of violent and lawless forces in the cities. And they don’t really have to work in the cities any longer, thanks to the lessons learned from the pandemic shutdowns. While some employers are trying to return to the status quo ante of office-based operations, the ease and low cost of distributed workforces is hard to ignore. This may be a very long recession. — Ed]

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